Markets for the week ending 6-Feb-09

Markets

- US markets rallied despite news that the US economy shed almost 600,000 jobs in January. Market assumed that the job losses would strengthen the president's hand and ensure that the stimulus would go through.

- US financial stocks enjoyed spectacular gains on the close of the week as investors looked beyond the bleak economic data and focused on Obama's plan to shore up the strickened sector.

- In Asia, Shanghai composite share index rose almost 10% this week on hopes that China's economy could see an early recovery

- The sterling pound continued recovering against the euro after the markets welcomed Bank of England's interest rates cut of 50bps to 1%, and the ECB left Euro Area interest rates unchanged at 2%.

Comments

European Central Bank made clear on Thursday, (as the Bank of England slashed UK interest rates by another half a percentage point) that zero per cent rate policy would be inappropriate “at the moment”, but his remarks did not rule out the ECB eventually following the US Federal Reserve, which has moved rates close to that level.

Sterling has climbed to a 2 month high against Euro after weeks after coming close to a whisker of being parity with the Euro.

This week, we also witnessed Unilever and GSK announcing that they will not be providing financial guidance for this year. CEO of Unilever is of the opinion that setting a target and subsequently revising them would lead to a decrease in credibility in the company.

Defensive companies had outperformed the market significantly in the last quarter of the 2008, but with them off their recent highs this week, it has given investors a wake up call that there aren't many more places to hide.

As investors continued to flock to the safe haven asset class of gold, Goldman Sachs, Merrill Lynch and UBS have dramatically altered their earlier forecasts and are all now predicting that the gold price will hit at least $1,000 an ounce this year, up from previous estimates of $700.

Interests in dividend swaps have been stirred up recently and it might be interesting to look at my article posted on 22-Jan-09.

Eric, London